Buying groups gain from credit crunch
By Clint Engel -- Furniture Today, July 21, 2008
HIGH POINT — At least two buying groups appear to be benefiting from the credit crunch that is gripping this industry and others.
As factors and other lenders have tightened the screws, sharply cutting back on the amount of risk they're willing to take financing inventory, leaders at AVB/BrandSource and Nationwide Marketing Group's Furniture Smart division say their own financing programs are gaining attention.
“It's all so new, but I'd say yes, it's definitely generated a lot of leads,” said Michael Allen, executive vice president of home furnishings for BrandSource.
Earlier this year, GE Capital Solutions confirmed that its Commercial Distribution Finance business was “reducing its unsecured inventory financing exposure in the furniture industry,” no longer offering any new credit lines and giving existing customer “reasonable time frames” to make other arrangements.
GE declined to say how much unsecured financing it was carrying. Furniture industry sources familiar with the program say the company gave customers 60 days to find other financing.
GE did say that the cuts didn't affect other inventory financing programs it offers to the industry, including those offered through furniture buying groups. Allen and Furniture Smart's Bill Bazemore attest to that.
BrandSource's Expert Finance business is a joint partnership with GE Capital Solutions that annually finances nearly $1 billion dollars in inventory for the buying group's members — who include electronics and appliances dealers and well as furniture retailers. BrandSource members have an ownership stake in Expert Finance and receive annual dividends based on how much volume they move through the program.
The secured inventory financing program essentially is paid for by vendors, who are charged a percentage of each invoice, which can vary depending on factors such as how soon the supplier wants to get paid and the length of time the dealer has to pay. Retailers typically have 90 days to pay off the bill and vendors typically get paid in about 15 days, Allen said, but he declined to disclose the typical cost to vendors.
The program finances goods from most of the furniture suppliers doing any business with BrandSource — a total of about 100 companies.
Allen said that when GE dropped its unsecured program, the vendors it was working with were moved into the secured program. He said he also has been getting calls, primarily from vendors looking for help in moving their non-buying group dealers under the BrandSource wing. BrandSource has gained furniture members, he said, and while he couldn't say how many are due to the need for financing, he believes it has become a major factor.
“I've had manufacturers call me and say, I've got a dealer that was using (GE's unsecured inventory financing program). I don't want to lose this guy's business and is BrandSource able to help?” Allen said.
AVB/BrandSource has more than 2,300 member companies with more than 5,000 stores, and he said about 650 members are primarily furniture retailers.
The more than 2,900-member Nationwide Marketing Group and its Furniture Smart division have seen similar interest in membership and the group's financing programs through GE and Textron.
“We're definitely seeing an increase across the board, not only in prospects coming to us, but in signups,” said Bazemore, Furniture Smart's executive director.
But he added that he thinks many factors are driving the interest, not just access to credit lines.
“The whole premise behind a buying group is to help create efficiency and drive dollars to the bottom line for independent operators,” he said.
Retailers gain from membership in a group, which can improve their efficiency, their negotiations with manufacturers and their credit picture, he said. Buying groups are valuable any time, but their virtues “become very evident” in trying times, Bazemore said.
Furniture Marketing Group offers financing programs through Wells Fargo and American General. Executive Director Mike Herschel said he has seen increased interest in membership, which has grown to about 80 companies.
“But I don't equate it to the credit crunch,” he said. “It's more due to the overall slow economy and dealers looking for an edge on the competition.”
The same goes for Furniture First, a buying group that has seen a recent spike in membership even though it doesn't have a financing program and doesn't see a need for one yet. Most of his members pay vendors directly, said Bill Hartman, Furniture First president. If they need cash, they often work out arrangements with banks.
Hartman said he believes programs such as GE's, paid for by suppliers, make it difficult for the vendors to give their best prices so “technically the dealer is paying for it in the end.”
“You can only get so much money out of suppliers in this economy,” he said.
But Hartman added that there's a chance his opinion about the need for a credit program may change.
“I do think, with this credit crunch, we have not seen the worst of it yet.”
Nationwide & FMG team up for conference
03/14/2008American General pulling back on financing
05/26/2009Buying group tops $1 billion in sales
02/22/2004Stores feel credit pinch
10/05/2008Buying groups have solid foothold
08/25/2002
